Managerial Accounting Exam 2 True/false

In a a manufacturing company, fixed costs remain the same at many different production levels within relevant range

true

Unit variable costs do not change as total production increases

true

mixed costs are purely fixed

false

fixed costs per unit decrease as production levels increase

true

An expense such as advertising could be considered a discretionary fixed cost.

true

The line on a graph representing total fixed costs will be a horizontal line.

true

total variable costs change in direct proportion to changes in volume

true

the variable cost per unit of activity increases as activity increases

false

total mixed costs increase as volume increases because of the variable cost component

true

fixed costs that are the result of previous arrangement decisions that current managers have no control over in the short run are called _______ fixed costs

committed

Which of the following costs is an example of a fixed cost?

Salary of plant manger

Under absorption costing, variable manufacturing costs are treated as period costs

false

if the number of units produced equals the number of units sold for a manufacturer both variable costing and absorption costing income statements will yield the same gross margin

false

If a manager sees a potential outlier in the data, he or she should first determine whether the data is correct

true

if there is little or no relationship between the cost and the volume, the data points on a scatter plot will appear almost as a straight line

false

the contribution margin per unit is how much profit each unit contribution after fixed costs are considered

false

when using the contribution margin ratio, managers project operating income based upon sales unit

false

a product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit

true

the contribution margin ratio is the unit contribution margin divided by the variable cost per unit

false

the breakeven point represents the minimum number of units a company must sell before it earns a profit

true

fixed costs of 15750 divided by the contribution margin ratio of 50% would wield the dollar amount of breakeven sales as 31,500

true

when calculating the breakeven point in terms of units, fixed costs should be divided by the contribution per unit

true

One key to analyzing short-term business decisions is to focus on relevant revenues, costs and profits.

true

one key to analyzing short-term business decisions is to use a contribution margin approach that separates variable costs from fixed costs

true

costs that differ between alternatives are irrelevant

false

one cost that is irrelevant in decision making is a sunk cost

true

managers decisions are based solely on quantitative factors

false

companies operating in highly competitive industries are generally price-setters

false

a price-setter company emhasizes a cost-plus approach to pricing

true

when a company is a price-setter, it emphasizes a target costing approach to pricing

false

cost plus price minus desired profit equals total cost

true

When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to yield the target total cost.

true

when setting prices, managers need to consider all costs

true

If a product line has a negative contribution margin, the product is not covering its fixed costs and should be discontinued.

true

for some merchandisers, the primary constraint may be cubic feet of display space

true

to maximize profits, produce the product with the lowest contribution margin per unit of the constraint

false

when making product mix decisions, companies are most profitable when they maximize production of the product with the highest contribution margin per unit of constraint

true

benefits foregone by choosing a particular alternative course of action

opportunity costs

expected future costs that differs among alternatives

relevant costs

costs of producing, developing and delivering a product or service

full cost of product or service

a factor that restricts production or sales of a product

constraint

A budget is a quantitative expression of a plan that helps managers coordinate and implement the plan.

true

the master budget is the set of budgeted financial statements and supporting schedules in the entire organization

true

the master budget includes both the operating budgets and the financial budgets

true

strategic planning enables the organization to establish long-term goals that extend 5-10 years into the future

true

a rolling budget is useful because the organization can continue to budget its operations 12 months into the future

true

the first component of the operating budget is the production budget

false

the sales budget is the cornerstone of the master budget

true

a cash collections budget focuses on the timing of cash receipts

true

the cash budget is prepared before the budgeted balance sheet is prepared

true

a merchandising company has a production budget

false

the managers at manufacturing, merchandising, and service companies prepare operating expenses busgets

true

the manager at a service company does not prepare a cash budget

false